America Needs Fewer Campaign-Finance Laws

By Wendy Kaminer

The problem isn't that there isn't enough regulation -- it's that the laws already on the books aren't adequately enforced.

Mariana Bazo/Reuters

Campaign-finance reform is a bit like the war on drugs: a decades-long exercise in over-regulation that has exacerbated the problems it was designed to solve.

Limits on contributions to candidate and party committees have facilitated the growth of super-rich super PACs and shadowy independent-expenditure groups. Like zoning laws that displace unwanted activities without diminishing them, campaign-finance restrictions have diverted money from political parties to independent groups.

But these groups also benefit from under-regulation, mainly failure to enforce existing law. The problem of dark money -- large, anonymous contributions to groups with anodyne names that mask their agendas -- is a problem caused largely by blatant violations of existing IRS provisions governing non-partisan public charities, which are entitled not to disclose their members or donors.

Might the courts correct the problems of over- and under-regulation? The Supreme Court has agreed to hear McCutcheon v. FEC, challenging aggregate limits on contributions to parties and candidates. Meanwhile, a challenge to IRS implementation (or non-implementation) of laws governing charities, Gill v. IRS, is pending in the D.C. federal district court. Reformers lament the first case and celebrate the second, but both address underlying causes of our campaign finance fiascos.

First, consider the McCutcheon case, brought by Shaun McCutcheon, an individual donor, and the Republican National Committee. McCutcheon complains that in the two-year period between January 2011 and December 2012, he was limited by law to contributing a total of $46,200 to candidates and $70,800 to other committees. Millions of Americans earn less than the aggregate amounts that donors are permitted to give to candidates and parties. But that is irrelevant to McCutcheon, who wants to give more, and the RNC, which wants to receive more; it's also irrelevant to their arguable First Amendment rights to do so.

It's important to stress that McCutcheon is not challenging limits on individual or base contributions to party committees or individual candidates. (Candidate contribution caps were $2,500 per federal election in 2011-2012; contributions to national party committees were capped at $30,800 per year.) He is challenging aggregate limits on contributions to candidates and parties. In other words, he is not demanding a right to give more than $2,500 to any candidate; he's demanding a right to give as much as $2,500 to more candidates, in excess of the aggregate cap.

Accepting the base limits on contributions is central to his case: With these limits in place, aggregate campaign contributions should be deemed campaign expenditures on McCutcheon's part, as though he were his own independent group, McCutcheon argues. (The Supreme Court has long held that expenditures are entitled to more robust First Amendment protection than contributions.) He adds that with base contributions to individual candidates subject to caps, aggregate contributions cannot be said to prevent corruption or the appearance of it.

The D.C. federal district court disagreed, declining to characterize aggregate contributions as expenditures and accepting the FEC's claim that aggregate limits help prevent circumvention of base limits. The court was not entirely unsympathetic to McCutcheon's complaint but suggested that it raised questions "for the Supreme Court," which has agreed to answer them.

If the 501(c)(4) loophole were closed, would mega-donors, right- and left-wing, find other funding vehicles and avenues of influence? Probably.

This is complicated litigation. I've simplified the facts and arguments involving the complex history of campaign-finance rules, which keep election lawyers busy. (Anyone who thinks campaign finance is generally under-regulated should try reading the documents in McCutcheon.) But while the case is complicated, the consequences for parties could be fairly simple: If the Supreme Court strikes down limits on aggregate contributions to party committees and candidates, it could conceivably strengthen parties at the expense of independent-expenditure groups. If the Court upholds the aggregate limits, these groups will continue to receive money that might otherwise have been channeled directly to candidates and parties.

The more independent-expenditure groups flourish and influence elections, the more they will and should be pressed to disclose their funding sources -- the subject of the Gill case. We do have important rights to speak anonymously, sometimes through our financial contributions. On balance, though, our rights to anonymity diminish as our contributions, and concomitant electoral influence, increase.

The trouble is that as long as partisan political groups are allowed to masquerade as public charities, mainly tax-exempt social-welfare organizations under section 501(c)(4) of the tax code, they cannot and should not be required to disclose their members and donors. Why? Because legitimate tax-exempt charities would be subject to the same disclosure rules imposed on faux charities. This is the primary bar to disclosure legislation aimed at dark-money independent-expenditure groups: their initial, unlawful classification as public charities.

Tax-exempt charities, and advocacy and welfare groups, are constitutionally protected from mandatory disclosure, as the Supreme Court ruled in the landmark case of NAACP v. Alabama, rejecting efforts by the state to obtain NAACP membership lists. NAACP members had First Amendment associational rights "to withhold their connection" to the NAACP, and the NAACP had standing to assert is members' rights, the Court held: "Inviolability of privacy in group association may in many circumstances be indispensable to preservation of freedom of association ..."

Of course independent-expenditure groups financed by super-rich individuals or corporations that engage in partisan electioneering are not quite comparable to the NAACP, and they shouldn't be treated as such. That's the point of Gill v. IRS, a lawsuit brought by David Gill, an unsuccessful 2012 congressional candidate who claims his candidacy was the victim of dark money expended by a faux social welfare group. Citizens for Responsibility and Ethics in Washington is a co-plaintiff.

A century-old law limits 501(c)(4) tax status to organizations devoted "exclusively" to social welfare. Gill complains that IRS regulations include organizations "primarily engaged" in social welfare under the rubric of "organizations operated exclusively for the promotion of social welfare." The IRS has not defined the "primary activity standard," and, Gill asserts, the agency is aware that some groups are interpreting it to mean that they can enjoy 501(c)(4) status and still spend 49 percent of their funds on political campaigns. Gill charges that in one five-month period in 2010, the putative social-welfare group involved in his campaign, America Action Network, spent nearly 70 percent of its funds on political activity.

Gill argues that the Supreme Court should invalidate the IRS regulation extending 501(c)(4) status to groups engaged primarily, not exclusively, in social-welfare work. The Court seems unlikely to agree. And in fact, the current regulation doesn't need to be rewritten so much as enforced. As a ProPublica investigation revealed last year, independent-expenditure groups routinely obtain undeserved 501(c)(4) status: "Dozens of these groups do little or nothing to justify the subsidies they receive from taxpayers. Instead, they are pouring much of their resources, directly or indirectly, into political races at the local, state and federal level."

If the 501(c)(4) loophole were closed, would mega-donors, on the right and left wings, find other funding vehicles and avenues of influence? Probably. But at least they wouldn't be able to hide behind the particular constitutional protections afforded legitimate public charities. Maybe, at least for a time, they'd exercise their rights to support candidates and advance their interests with appropriate transparency (which would probably discourage some corporate contributions). Maybe they'd devise new legal strategies and subterfuges. Partisans will always value winning over how they play the game. Defending electoral integrity, along with First Amendment freedoms, is a nuanced exercise in eternal vigilance.